1、YOU ARE HERE CONTENTSABOUT THE REPORTBUSINESSENVIRONMENTCHAPTER 1CHAPTER 5ENVIRONMENTAL&SOCIAL IMPACTCHAPTER 220 YEARS OF EMERGING TRENDS EUROPECHAPTER 7CITYPROSPECTSAPPENDIXEXECUTIVESUMMARYWELCOMEREAL ESTATE&CAPITAL MARKETSCHAPTER 3CITIES TO WATCHCHAPTER 6SECTORSTO WATCHCHAPTER 4CONTENTSYOU ARE HER

2、E EXECUTIVE SUMMARYCONTENTS“We are on the cusp of quite a significant slowdown,both in the real economy and in the underlying real estate markets.”Pan-European investment managerEXECUTIVE SUMMARYMADRID,SPAINPREVIOUS NEXT YOU ARE HERE EXECUTIVE SUMMARYZURICH,SWITZERLANDThe outbreak of war in Ukraine

3、has cast a long shadow over Europe,and real estate,like every other industry,will have to deal with the economic and political fallout for the foreseeable future.While the industry leaders canvassed for this 20th edition of Emerging Trends in Real Estate Europe report little direct impact on their p

4、roperty portfolios from Russias invasion of Ukraine,the wars consequences are seen in surging energy costs,historically high inflation and,latterly,rising interest rates.Seven out of 10 survey respondents believe Europe will move into recession before the end of 2022.The survey and the interviews we

5、re conducted in the summer and,if anything,the prospects for the European economy and real estate markets have become even more uncertain in the months leading up to publication.The mood is in stark contrast to last years report when there was still a COVID-inspired solidarity among European countri

6、es as well as a coming-out-of-lockdown peak in business sentiment.Europe now appears far more unsettled by the pressures of energy supply and internal politics,which is adding to the overall uncertainty for investors.Much depends on the severity and duration of the expected recession,and as intervie

7、wees point out,the economic circumstances and market conditions behind previous downturns are all quite different from what Europe is experiencing today.Though the city rankings have a familiar look London retains the top spot while Paris takes over second place from Berlin the overall investment an

8、d development prospects for all 30 cities covered by Emerging Trends Europe have declined since last years survey.Even investors other customary safe havens in Germany,Frankfurt,Munich and Hamburg,do not enjoy the same unwavering positive sentiment as previous years,reflecting the potential impact o

9、f inflation on Europes largest economy and its dependency on Russian gas supplies.Despite the prevailing uncertainty,leasing activity across Europe held up reasonably well for much of 2022.But there is a widespread belief that high energy prices and a recession will lead to occupancies and rents fal

10、ling,even in previously robust sectors.It is clear that 2023 will be a tough year in any event,and as some industry leaders contend,a recovery may not emerge until early 2024.Unsurprisingly,confidence in the availability of equity and debt over the coming year has sunk to its lowest level since the

11、global financial crisis although it is unlikely that liquidity will disappear altogether.Development activity slowed in 2022 and is expected to fall sharply in 2023.As a sign of the times,new energy infrastructure tops the sector rankings for the second successive year,partly reflecting historically

12、 high energy prices and the prospect of shortages over winter.This sector covers a wide range of real assets,such as solar,wind,energy storage and electric transport infrastructure.Its top ranking is also part of a wider,longer-term trend in which investors rebalance holdings away from mainstream re

13、al estate towards alternative sectors that will benefit from the megatrends of demographics,climate change and technology and stronger,non-cyclical demand.It is notable that various forms of housing dominate the top 10 picks from survey respondents as they have done for several years despite increas

14、ed concerns over political risk in this sector.On a broad level,there is an acceptance that the balance between residential supply and demand in European markets has not changed in the past year,and it is unlikely to change any time soon.CONTENTSPREVIOUS NEXT The big fear is over the pressure on rea

15、l estate values,which has been well signalled in the listed sector as discounts to net asset value continue to deepen.Direct property values started falling in 2022 and a further decline is now regarded as inevitable,with the pricing between prime and secondary real estate expected to widen.Some of

16、that concern has led to logistics,the one-time star performer,slipping down the overall rankings although it still stands at seventh place in terms of prospects for investment,and sixth for rental growth.But a sector that has seen yields compress to historic lows,sub-3 percent in many markets,is par

17、ticularly exposed when values fall.Many senior property professionals believe that inflation will peak at some point in 2023 and bring clarity over how much central banks are likely to raise interest rates.Assets might be worth less at that point,but there would be more direction over where values a

18、re likely to settle.Yet in dealing with the immediate disruption to markets the industry appears to acknowledge that it must continue to evolve and respond responsibly to the long-term structural changes to real estate and the wider challenges around environmental,social and governance issues.Nearly

19、 90 percent of respondents highlight the importance of creating social impact alongside financial return over the next 20 years,while 60 percent identify the importance of increasing diversity in their organisations.The challenge is always aligning actions with such laudable ambitions,and even more

20、so in a year when issues around energy efficiency and supply have affected every European household and when economic constraints threaten to obstruct the path to net zero.Real estates efforts here have a renewed criticality.Nonetheless,as each year goes by,property professionals are thinking much m

21、ore about how the industry conducts business and about the sort of real estate that will be“fit for purpose”for the long term.To mark 20 years of Emerging Trends Europe we have asked a broad range of industry players to explore such themes and how they may define real estate over the next 20 years w

22、hile reflecting on the many market changes that have shaped the industry to date.As set out in Chapter 7,the industrys move towards a form of“responsible capitalism”over the next 20 years is driven by many factors but above all by the climate crisis.It is one trend that has only gained in prominence

23、 and relevance throughout Emerging Trends Europes history,connecting the past,present and future.Globalisation was a tremendous wealth creator in the world,and it is going into a pause or a slight reverse.The implication for real estate is that its no longer the rising tide that sails all boats.Its

24、going to be about where you can differentiate through being smart rather than just through scale.Global investment managerYOU ARE HERE EXECUTIVE SUMMARYLONDON,UKCONTENTSPREVIOUS NEXT YOU ARE HERE BUSINESS ENVIRONMENT“As investors,we are facing not only purely economic issues but also geopolitical on

25、es that used to be interesting to understand but are actually now having a significant impact on our economies.”Head of strategy,private equity firm CHAPTER 1BUSINESS ENVIRONMENTFRANKFURT,GERMANYCONTENTSPREVIOUS NEXT YOU ARE HERE BUSINESS ENVIRONMENT PARIS,FRANCEIf the third year of the pandemic was

26、 supposed to usher in signs of hope,the outbreak of war in Europe has delayed recovery and exposed significant structural weaknesses in the economic,social and political fabric.Emerging Trends in Real Estate Europe 2023 finds the property world stalling at an uncomfortable crossroads,as rising inter

27、est rates hitched to soaring inflation drag Europe towards recession.Summing up the mood across the industry,one Irish property leader says:“Europe is in for a very grim winter.”Following a brief,COVID-inspired,show of solidarity,Europe has become more unsettled by the pressures of energy supply and

28、 internal politics.States are even chiding each other for their economic short-sightedness over their reliance on Russian gas and have repeatedly failed to reach a consensus on the issue.A global head of investment management notes that the differences are at times,stark:“If youre sitting in Germany

29、 or the UK,all of a sudden energy is a huge subject,whereas the French,benefiting from nuclear power,might be asking,wheres the problem?”But right-wing election successes in Sweden and Italy,a new Prime Minister of the UK and uncertainty in France all suggest that further upheaval is likely across t

30、he political landscape.The European Commission will undoubtedly face a tougher ride in achieving unanimous decisions.Says one German CEO:“Just look at sleepy and complacent Germany.I believe the heat we are feeling now is actually triggering some needed reforms that we couldnt have gotten a grip on

31、without those external forces.”While those interviewed for Emerging Trends Europe report little direct impact on their property portfolios from the Ukraine conflict,the wars consequences are everywhere.“Its impossible to say we havent been affected by the war.Just look at energy costs,inflation and

32、interest rates,”notes the CEO of a pan-European developer.The resultant affordability crisis and recession risk the effects of which are likely to impact all sectors in one way or another have robbed the industry of the clear“safe-haven”sectors afforded by the first two years of COVID-19,such as res

33、idential and logistics.In the face of increasingly expensive debt,property professionals perceive that even the relative income security offered by operational assets is going to require greater effort and ingenuity.Many are waiting for clarity on pricing and yields.There will be a change in valuati

34、ons driven by higher interest rates and a change in relative pricing between prime and secondary real estate,”suggests the head of investment strategy of a pan-European investor.The listed sector is already bearing the brunt as discounts to net asset value(NAV)continue to deepen,with a number of fir

35、ms exploring the“take private”route.Italys Coima is a recent example,delisting after just six years on the stock market.But the pressure is not limited to firms specialising in assets unduly affected by the current crisis even the managing director of a profitable logistics group notes that“like eve

36、ryone,our share price has dropped fairly significantly”.Investors do not like uncertainty.While many took an early summer break in the hope of resuming business as usual in September,the investment climate has continued to deteriorate significantly.Now,many transactions are on hold as fears have cry

37、stalised into clarity with borrowing costs higher than they have been in a generation.Although real estate companies are not as leveraged as they were going into the global financial crisis largely due to the regulatory changes of the past decade and a half,double-digit inflation in some territories

38、 and the spectre of stagflation continue to weaken investor demand going into 2023.There will be a change in valuations driven by higher interest rates and a change in relative pricing between prime and secondary real estate,as soon as recession comes.CONTENTSPREVIOUS NEXT“All market participants ar

39、e acting very carefully,so liquidity is going down.I expect transaction volumes to fall off quite severely,”says a global head of investment management.The focus on environmental,social and governance(ESG)issues is clearly still important to the industry,although the climate debate has in part been

40、drowned-out by the siren call of macroeconomic woes,with construction costs inflated by congested supply chains.Yet as consumer and industry fears around affordability matters soar,real estate has an opportunity to dovetail social impact efforts and environmental stewardship and tackle the materials

41、 and energy crisis with a radical approach to sustainability.Previous editions of Emerging Trends Europe have found industry protagonists reframing real estate as“social infrastructure”.Many in the industry believe the time to make good on that claim has arrived.Says a global investment strategy chi

42、ef:“New development has slowed down,refurbishment has slowed down,but despite this,the ESG commitments that we have all made for the next few years will have to be undertaken.”Realism supersedes optimismThe survey signals a decline in profits and confidence in 2023,reflecting a cautionary mood acros

43、s the industry.This is markedly different to last year,when there was a coming-out-of-lockdown peak in sentiment.“The availability of both equity and debt capital has declined.Investors have become more selective and banks have become more risk averse,”notes a global head of real estate investment.H

44、owever,while the proportion expecting business confidence,profitability and headcount to increase has fallen compared with 2022,the overall share is still higher than in year one of the pandemic.Headcount remains the most positive indicator with 56 percent of respondents expecting numbers to remain

45、the same.The results suggest that the currently tight labour markets are on the whole driving a staff retention policy with only 10 percent of respondents envisaging letting people go.“We have a lack of labour forces,and we have pressure on salaries and wages,which never happened in the middle of a

46、recession before,”says a pan-European real estate CEO.YOU ARE HERE BUSINESS ENVIRONMENTBusiness confidence Business profitability Business headcount20%30%40%50%60%increase2000020202120222023Source:Emerging Trends Europe survey 2023Figure 1-1 Real estate business sent

47、iment,2011-2023All market participants are acting very carefully,so liquidity is going down.I expect transaction volumes to fall off quite severely.CONTENTSPREVIOUS NEXT InflationInterest rate movementsEuropean economic growthGlobal economic growthCurrency volatilityCybersecurityBusiness liquidity i

48、ssuesDeglobalisationSudden shifts in consumer demandManagement of the workforceDigital transformationBusiness interruption Even so,European real estate faces a major challenge from a quartet of inter-linked economic headwinds,and there is a noticeable increase in concern from industry leaders compar

49、ed with 2022.Worries over inflation,interest rates,European and global economic growth are all sharply up on last year and even then,they were starting to alarm a majority of respondents.But this time,there is almost complete consensus that inflation is“concerning”according to 91 percent of industry

50、 leaders.This contrasts markedly with 2022 when the greatest concern was cybersecurity,according to just two-thirds of respondents.“Its very difficult to stay competitive in this inflationary environment,”concludes a roundtable of ULI members in Belgium and Luxembourg.Only a few perceive an upside t

51、o the inflation issue.“If money becomes worth less,existing money will be invested more in real estate.High earners are still buying property as an inflation hedge,”according to a panel of Austrian property professionals.Unsurprisingly,interest rates follow closely behind as a chief concern on 89 pe

52、rcent,while sluggish European growth is another red flag for 88 percent of respondents.Downturn risks in the global economy are significant for 81 percent of respondents twice as many as last year.“Europe has little gas and oil,which is making energy expensive.The risk is that locations across the c

53、ontinent will lose their attractiveness for industrial and commercial production,and international companies will be the first to leave,”warns a global head of real estate.“We really must get a grip.We cant rely on China for our economy,on the US for our national security,and on Russia for our energ

54、y,”states the CEO of a pan-European developer.In August,US president Joe Biden signed the Inflation Reduction Act into law,a policy designed to reduce the countrys deficit while potentially easing consumer spending on healthcare.Notably,it has also been called the largest climate investment in US hi

55、story,with several provisos to increase energy security.It will largely be paid for by corporations.The EU and UK response has included the central banks of both raising interest rates.YOU ARE HERE BUSINESS ENVIRONMENTSource:Emerging Trends Europe survey 2022Figure 1-2 The European business environm

56、ent issues causing concern in 2023Not at all concerned Not very concerned Neither/nor Somewhat concerned Very concerned Overall%concerned2023 2022 202191%59%29%89%55%28%88%50%90%81%43%87%49%30%35%48%67%54%37%30%62%35%27%40%33%27%40%32%44%70%28%42%41%25%55%80%Source:Emerging Trends Europe survey 2023

57、If money becomes worth less,existing money will be invested more in real estate.High earners are still buying property as an inflation hedge.CONTENTSPREVIOUS NEXT InflationInterest rate movementsEuropean economic growthCurrency volatilityCybersecurityDeglobalisationDigital transformationYOU ARE HERE

58、 BUSINESS ENVIRONMENTAs it announced a record rise of 75 bps in September,the European Central Bank stated that“a gradual but sustained path of further increases in interest rates will be appropriate”.While the inflationary risk is highlighted by survey respondents and interviewees,they also express

59、 grave concerns about the impact on business of rising interest rates.“The fact that interest rates shot up and became volatile and unpredictable hasnt helped the investment market,”says one real estate fund manager.Nearly three quarters of survey respondents believe Europe will move into recession

60、before 2023,further cementing the hit to development activity provoked by the last two years of supply chain woes,increasingly high borrowing costs and a general lack of financing.Germany and the UK look unlikely to escape this fate,while countries such as France and Spain are more insulated than th

61、eir neighbours,largely due to how they source energy.Several respondents flag the centrality of energy security as a predictor of recession or at the very least,an economic slowdown.One German managing director voices the widespread fear over Germanys fate should Russia turn off gas pipelines perman

62、ently.“If Putin really cuts off the gas supply,I would assume that we in Germany are ending up in lockdowns again.Or,lets say,closures of certain parts of business,which are probably not system relevant.”Due to the fractured nature of the energy security issue,however,views on recession risk vary ac

63、ross Europe.According to the survey,recession is very likely before 2023 for 83 percent of respondents in Germany,82 percent in the UK,79 percent in the Netherlands,and 68 percent in Spain.In contrast,Italian(50 percent)and French(45 percent)respondents are more sanguine.“The key is going to be how

64、long are we going to live with high inflation and high rates,because these translate into a recession and can further translate into stagflation,”says the CEO of a Spanish real estate firm.A Netherlands-based managing director adds:“I dont think there will be a deep recession,but there may well be t

65、wo or three quarters of slowdown.”Over the next five years,the industry indicates a similar level of concern over many of the key business issues,with European economic growth(76 percent)and interest rates(73 percent)in pole position,followed by global economic growth.“I would think theres definitel

66、y going to be a slightly more challenging business environment for the next three to five years,”notes a senior management figure at a private equity firm.The exception here is inflation:as interest rates rise,just 13 percent of respondents are concerned about its medium-term impact.A UK-based globa

67、l real estate head explains:“We forecast that inflation rates will remain elevated until Q1 of next year,and then taper off to around 2 percent,2.5 percent over the remaining window.Interest rates should be similar.”A Europe-based head of investment strategy for a global real estate fund is also opt

68、imistic:“I think inflation is going to peak relatively soon.It will probably peak at some point in the next three to six months.Oil prices have already gone down and the market is expecting interest rates to peak probably by the end of 2022,maybe 2023,and then go down,triggered by a recession.”The f

69、act that interest rates shot up and became volatile and unpredictable hasnt helped the investment market.Figure 1-3 European business environmentconcerns for 2023 and over the next five years91%89%88%49%48%35%28%13%73%76%39%48%38%34%2023 Next 3-5 yearsNote:Combined percentage of“concerned”and“very c

70、oncerned”respondents.Source:Emerging Trends Europe survey 2023CONTENTSPREVIOUS NEXT YOU ARE HERE BUSINESS ENVIRONMENTBuilding a sustainable futureDespite the macroeconomic uncertainty,environment and sustainability strategies remain key priorities for most industry leaders in 2023.For many of them,c

71、limate risk represents the biggest challenge facing real estate.“There is no single discussion you will have with any peer in real estate that does not end up referencing ESG and decarbonisation,”says a European head of asset management.The environment will be a significant issue for more than half

72、of property professionals in the coming year.The surprise is that 45 percent of respondents do not regard this as a concern today,although this could tie in to their longer-term observations.Indeed,64 percent of respondents see sustainability requirements and regulations as a key concern over the ne

73、xt 3 to 5 years.Those who are less concerned suggest they have more urgent priorities.“The short-and medium-term concerns are the markets inflationary tendencies.In the long term,the issue is the environment,”says a real estate investment manager.The likelihood of greater regulation shaping ESG has

74、been a recurring theme in Emerging Trends Europe over several years,but this time the survey suggests a step-change in its importance to the industry.Half of the respondents regard it as an issue for the coming year and even more so,60 percent,for the medium term.For one pan-European CEO,this emergi

75、ng trend is long overdue.“We created a lot of new rules such as those governing taxonomy in the last few years,which many saw as another layer of bureaucracy,rather than a new way of considering our overall contribution and the necessary,and deep transformation towards a much more sober way of doing

76、 business.”There is no single discussion you will have with any peer in real estate that does not end up referencing ESG and decarbonisation.Figure 1-4 Real estate business issues in 2023 and over the next five yearsConstruction costsAvailabililty of resourcesEnvironmental sustainability/decarbonisa

77、tion requirementsAvailability of(re)financeIncreased regulation(national/international)Availability of suitable assets/land for acquisition&developmentAsset obsolescenceCovenant&loan servicing issues for existing loans2023 Next 3-5 years92%84%55%53%51%48%37%31%76%73%64%42%60%48%44%33%Source:Emerging

78、 Trends Europe survey 2023Note:Combined percentage of“concerned”and“very concerned”respondents.CONTENTSPREVIOUS NEXT Construction costsAvailability of resourcesEnvironmental sustainability/decarbonisation requirementsAvailability of(re)financeCap rate expansionIncreased regulation(national/internati

79、onal)Availability of suitable assets/land for acquisition and developmentAsset obsolescenceCovenant and loan servicing issues for existing loansFigure 1-5 Real estate business issues causing concern in 2023Not at all concerned Not very concerned Neither/nor Somewhat concerned Very concerned Overall%

80、concerned92%84%55%53%53%51%48%37%31%Source:Emerging Trends Europe survey 2023YOU ARE HERE BUSINESS ENVIRONMENTHowever,respondents top two real estate issues for 2023 are construction costs(92 percent)and availability of resources(84 percent)in the light of materials and labour shortages and related

81、inflationary pressures.While construction costs have been at or near the top of industry concerns for years,supply-chain issues that started during the pandemic have been exacerbated by war in Ukraine,with fuel,copper and aluminium particularly affected.Russia and Ukraine are also key exporters of s

82、peciality metals,and the conflict has caused significant disruption of labour in the construction trade.“Higher construction costs are down to two things.High commodity and fuel prices,but also supply chain disruptions,”suggests one real estate strategy head,before noting that the latter“are startin

83、g to ease”.Yet the survey indicates that significant improvements on the construction front are unlikely in the coming three to five years.Around three quarters of respondents believe that construction costs and availability of resources will remain top of the list of concerns over that period.“The

84、whole issue of construction is actually very hot at the moment,and anyone who has to build now is expecting a cost escalation that would have been unimaginable 12 months ago,”says one pan-European asset manager.Disrupted supply chains have led to“an explosion in construction prices”,according to a E

85、uropean head of real estate investment.“Binding construction cost commitments,from ones own contractor as well as from others,are no longer available.This makes planning difficult.”The whole issue of construction is actually very hot at the moment,and anyone who has to build now is expecting a cost

86、escalation that would have been unimaginable 12 months ago.CONTENTSPREVIOUS NEXT 31%17%26%15%YOU ARE HERE BUSINESS ENVIRONMENTThe impact of warAs might be expected,Russias invasion of Ukraine is the top social-political issue for nearly 90 percent of industry leaders,but largely for indirect reasons

87、.The inflationary environment and all its consequences are the prime issue,with few respondents describing the impact of war in strictly territorial terms.“We havent seen direct effects but energy costs have just exploded.That coincided with high inflation,which was around before,has led to interest

88、 rate reactions by the respective institutions that affect everyone who works in real estate,”says a pan-European real estate CEO.The second highest social-political concern is international political instability(79 percent)while European and national political instability also feature.Though the wa

89、r in Ukraine is uppermost in the minds of many,the arrival of new political leaders in the UK,Sweden and Italy is also informing sentiment.The populism factor has not gone away in Europe,Brexit seems far from being resolved,and inter-European relations are likely to be on an evolutionary course in 2

90、023.“Italy is like a time bomb for Europe,while the UK,also because of the Brexit issue,has been at a standstill for six months,”says the senior managing director of a global real estate firm.Financial markets are wary as to whether Italys new far-right coalition government could spark another Europ

91、ean sovereign debt crisis following promises of increased public spending.Likewise in the UK,“trickle-down”economic policies have attracted criticism for extending government borrowing while the country braces for recession.Given the overall downbeat mood,only around half of this years survey respon

92、dents expect to be net buyers of European real estate next year.This figure is down on last year(59 percent)and slightly more bearish than survey respondents were during the pandemic 55 percent were net buyers in the 2021 report.If anything,however,sentiment has dipped further since the survey was c

93、onducted in the summer.“Weve already seen some of the more highly levered investors effectively cut out of the market completely,”indicates a pan-European developer.Despite the overall uncertainty about the near future,the interviews and roundtables reflect differing views across sectors,specialisms

94、 and geographies.Though last years“safe haven”sectors,such as logistics,are certainly challenged by the macroeconomic environment,pure logistics specialists remain more buoyant than some of their counterparts in other sectors.“Occupancy is the highest it has ever been,rent growth is the highest it h

95、as ever been.Customer demand is still really,really strong,”says one pan-European logistics developer and investor.In general,the potential weakness in occupier demand in most other sectors is influencing a broad shift to a more cautious approach to risk,even for those already in the core space.As c

96、overed in more detail in Chapter 3,the jury is still out on how distress will emerge from the prevailing market conditions.On the whole,interviewees do not foresee an influx of poorly performing assets onto the market,but the deep discounts to net asset value in the listed sector during 2022 are rin

97、ging alarm bells for property values in the coming year.With open-ended funds there are concerns over the distress risk and a possible run on redemptions.Institutional investors are also assessing the so-called“denominator effect”of falling values in other asset classes on their real estate allocati

98、ons.“We will probably see distress to the extent that certain funds suddenly become over-allocated to real estate and therefore need to sell.Now,they wont sell at any price,but theyll probably sell at less than what we would call market prices because theres some kind of urgency,”says a pan-European

99、 real estate chief.51%of respondents are aiming to be a net buyer of real estate assets in Europe.Figure 1-6Appetite for European real estate in 2023A net buyer of real estate assets in Europe51%59%Buying and selling similar amounts of real estate assets in Europe2023 2022Source:Emerging Trends Euro

100、pe survey 2023A net seller of real estate assets in EuropeCONTENTSPREVIOUS NEXT Bearing in mind that economic uncertainty is not good for real estate,we believe that once healthy levels of inflation and interest rates are restored,confidence and investment in real estate will return.There is a flip

101、side to distress in a downturn,according to the CFO of a Nordic real estate company:“It is in troubled times that the best deals are made,and I believe that the coming time will open up opportunities for those who have access to capital.”Adds a pan-European CEO:“Bearing in mind that economic uncerta

102、inty is not good for real estate,we believe that once healthy levels of inflation and interest rates are restored,confidence and investment in real estate will return.”Russias invasion of UkrainePolitical instability(international)Environmental issues(e.g.air quality/climate change)Political instabi

103、lity(Europe)Housing affordabilitySocial equality/inequalityPolitical instability(national)Mass migrationFigure 1-7 Social and political issues causing concern in 2023Not at all concerned Not very concerned Neither/nor Somewhat concerned Very concerned Overall%concerned88%79%76%68%65%60%54%42%YOU ARE

104、 HERE BUSINESS ENVIRONMENTSHOPPERS ON GRAFTON STREET.DUBLIN,IRELANDTHE MOTHERLAND MONUMENT IN KYIV,UKRAINESource:Emerging Trends Europe survey 2023CONTENTSPREVIOUS NEXT“People are working much harder to measure social impact to do the right thing and be held accountable.But as an idea,its still plag

105、ued by a lack of standardisation,and the industry needs to work harder still to speak with one voice about what its doing.”UK fund managerCHAPTER 2ENVIRONMENTAL&SOCIAL IMPACT CYCLISTS RIDING IN AMSTERDAM,NETHERLANDSYOU ARE HERE ENVIRONMENTAL&SOCIAL IMPACTCONTENTSPREVIOUS NEXT YOU ARE HERE ENVIRONMEN

106、TAL&SOCIAL IMPACT“Those who didnt pay attention to the three letters of ESG until now hadnt realised that we are already in a time of transformation.As always,the current crisis is accelerating existing trends,”notes one pan-European CEO.Nearly 90 percent of respondents highlight the importance of c

107、reating social impact alongside financial return over the next 20 years,while 60 percent identify the importance of increasing diversity in their organisations.“We now have a number of internal committees tackling these matters,and our policies include very progressive diversity and inclusion guidan

108、ce,”reports the director of environmental,social and governance(ESG)at a global institutional investor.The challenge is always aligning actions with such laudable ambitions,and even more so in a year when questions around energy efficiency and supply have affected every European household,and net ze

109、ro has become political warfare.Real estates efforts have a renewed criticality.“We have to achieve an energy turnaround,where buildings generate the energy they consume themselves and can also feed energy into the grid.Heat recovery,district heating,even the building materials should become more su

110、stainable,”suggests a global head of real estate.Others see the economic climate as a hindrance more than a help in tackling ESG-alignment.“The cost factors surrounding refurbishments and new buildings at the moment could act as a break in the market because of the uncertainty in terms of what the e

111、nd value is and what the cost of building really is,”says a global institutional investor.Yet the operational performance of buildings is no longer just a part of the E in ESG.It has big implications for the S,too the social impact as tenants face significant affordability pressures due to high rent

112、s and now increasing energy costs.This comes back to the concept of real estate as“social infrastructure”and if not addressed can affect financial returns.The S factor has gained visibility in recent years,with industry leaders seeing it as a means of improving their organisations and serving the wi

113、der community.Progress is slow,however,according to the survey.When asked about the social aspects in portfolios,the provision of community spaces has been the industrys top priority during 2022 albeit increasing in importance for just 57 percent of respondents.Responses are slightly more encouragin

114、g over the next five years.Figure 2-1 The importance of ESG for the successful organisational transformation of the real estate industry over the next 20 yearsPerceived change in importance since beginning of 2022Expected change in importance in next 3-5 yearsNot at all important Not so important Ne

115、ither/nor Somewhat important Very important Running an environmentally and socially responsible business59%34%6%Source:Emerging Trends Europe survey 2023Figure 2-2 The changing importance of social issues within a portfolioFor an overwhelming 93 percent of the industry leaders surveyed for Emerging

116、Trends Europe,running an environmentally and socially sustainable business is the most important factor for successful organisational transformation in real estate over the next 20 years.Provision of community space/public amenities57%63%42%30%2%8%Social impact/value contribution62%46%30%52%9%2%Acce

117、ss to affordable homes61%40%29%57%10%3%Creation of local employment/training opportunities48%34%47%64%5%2%Supporting local/small businesses46%28%49%68%6%4%Decrease in importance Stay the same Increase in importanceCreating social impact alongside financial return36%51%10%1%3%1%Source:Emerging Trends

118、 Europe survey 2023CONTENTSPREVIOUS NEXT GenderSocio-economicLGBTQ+BAME(Black,asian,and minority ethnic)Neurodiversityrefers to alternative thinking styles,such as dyslexia,autism,ADHD and dyspraxia77%50%43%35%13%“In the future,property owners will need to show responsibility towards the community,a

119、s new zoning plans will be much more strictly regulated over the next ten years,”says one Swedish property player,adding however that“financial incentives will be required to get the private sector on board”.Indeed,the industry has already started to recalibrate how it looks at social impact.Early a

120、ttempts to make real estate“humancentric”were often simply about tenant retention;today,they have evolved into wide-ranging programmes to deliver projects whose overall value is linked to their social worth.These include conspicuous health and wellbeing solutions for a post-pandemic world,as well as

121、 diversity targets and local employment drives.If offices are now for collaboration,since solo work can be done by many at home,spaces need to promote interaction and creativity.Retail-led schemes and mixed-use developments must increasingly foster community engagement to achieve commercial success.

122、Perhaps the best opportunity lies in broadening the use of residential amenities,so they serve the individual and the wider community,across both private and subsidised housing.Not all industry leaders are wholly convinced about the cost benefits of providing socially-inspired amenities.As one Austr

123、ian interviewee concludes:“It pays off for larger projects,but not for smaller projects.”However,the growing awareness of the real estates broader role and obligations in society underpins more and more decision-making across the industry.If cities are ecosystems,then buildings and their users are i

124、n a state of symbiosis.And like any habitat,small changes can have a big effect.Recent headwinds such as the tight labour market and the resulting war for talent,housing supply pressures and Europes energy security crisis have huge implications for both society and real estate.The industry,more than

125、 ever in“hands-on”,operational mode,evidently has further problems to solve.For some,this is where the diversity,equality and inclusion(DEI)issue also plays in.This matter has emerged simultaneously on more than one continent in recent years,fired by simmering racial tensions and questions around po

126、verty,opportunity and social justice.When it comes to promoting DEI in their organisations,50 percent of real estate leaders say they are actively addressing socio-economic policies this year compared with 37 percent last year.But in the face of worsening economic conditions,the industry again seems

127、 poised between riding out the storm or trying to harness it to sail forward with greater speed.YOU ARE HERE ENVIRONMENTAL&SOCIAL IMPACT LGBT PRIDE PARADE IN ISTANBUL,TURKEYFigure 2-3 The diversity,equity and inclusion categories that companies are actively addressingSource:Emerging Trends Europe su

128、rvey 2023CONTENTSPREVIOUS NEXT According to one global investment manager:“The real estate industry needs highly skilled people with even more dimensions than 10 years ago.And I find this particularly interesting because it shows that you cannot automatise our industry.We call it an industry,but it

129、is everything but an industry,it is all handmade.”Whatever the medium and long-term outlook for social matters in real estate,some would say that the current macroeconomic conditions chiefly high inflation,high energy costs and rising interest rates strengthen the case for urgent action because they

130、 disproportionately affect poorer members of society.Yet there remains a sense across the industry that the required legislative lever for social impact is confined to development and largely missing in all other aspects of real estate activity.“There are no established criteria for social impact in

131、vestment right now.Except one,which is affordable housing,”notes a global head of investment management.And where the state does intervene,there is no guarantee of success.For example,Danish property professionals note that the City of Copenhagen requires that as much as 40 percent of all new homes

132、are affordable recently raised from 25 percent which could drive developers away from the sector altogether.When it comes to self-directed action to tackle social equity,progress remains ad hoc.Several interviewees are proud of initiatives to train and hire local labour,but housing affordability ove

133、rall is well down the list of criteria for survey respondents when selecting a city for investment.While residential features ever more significantly on the allocations of investors interested in playing a social role,one real estate lender flags the hypocrisy risk:“If you have a business plan where

134、 you set rent increases of 10 to 20 percent,that makes total sense from an economic point of view,but can that still be called social?”Real estates priorities have always been in a constant state of evolution although it seems like the dated caricature of grasping landlords unconcerned for their ten

135、ants welfare can be substantially archived.Yet how the property world fully and satisfactorily aligns future profits with a wider social objective is still in flux.YOU ARE HERE ENVIRONMENTAL&SOCIAL IMPACTThe real estate industry needs highly skilled people with even more dimensions than 10 years ago

136、.TALL BUILDINGS ON A CONSTRUCTION SITE REFLECTED ON GLASS IN WEMBLEY,UKCONTENTSPREVIOUS NEXT“Our investors are really cautious,and not just for real estate.Its not the time when they want to build up more exposure to virtually any asset class.I dont say we see a lot of capital pulling out of the mar

137、ket,but its difficult to grow at the moment.”Pan-European investment managerCHAPTER 3REAL ESTATE CAPITAL MARKETS HELSINKI.FINLANDYOU ARE HERE REAL ESTATE CAPITAL MARKETSCONTENTSPREVIOUS NEXT Figure 3-1 Expectations for the economy and inflationFigure 3-2 Primary drivers of a recession in 2022Source:

138、Emerging Trends Europe survey 2023Source:Emerging Trends Europe survey 2023Continuedhigh inflationContinuedhigh energy pricesGeopoliticaleventDecreasedconsumer spendingContinuedsupply chain disruptionsRisingunemployment31%31%14%11%9%1%After a decade of plentiful liquidity in European real estate cap

139、ital markets,when asset prices rose in most sectors in most countries,the story has changed dramatically as the industry looks to 2023 and beyond.Inflation is up,interest rates have risen and have further to go,industry leaders believe,and recession is a spectre that haunts European economies.Equity

140、 and debt,in turn,are harder to come by,and interviewees report that valuations have fallen significantly in major markets,albeit empirical evidence is limited so far.Though liquidity may not disappear altogether as it did during the global financial crisis(GFC),confidence in the availability of cap

141、ital has sunk to its lowest level since those dark days.And a confluence of economic factors means the industry is facing a reckoning that many thought would arrive in the wake of COVID-19.Instead,it has come 18 months later.As one large private equity investor says:“Youve got dead markets that are

142、meaningfully much less liquid than they were.”Another global player adds:“It doesnt feel like the GFC.Its not necessarily an enormous liquidity crisis.Theres a lot of good news still coming through,and people arent levered in the same way that they were.However,the relative value of other asset clas

143、ses means theres no doubt theres going to be a repricing.Its happening already.”Europe facing recessionSeven out of 10 survey respondents believe Europe will move into recession before 2023 and views about the prospects for the economy and the real estate sector have become rapidly more negative as

144、a summer of uncertainty turned into an autumn of consistently downbeat forecasts.Industry leaders believe that liquidity will decrease farther in a market of lower investment volumes,rents and occupancies.Development will fall sharply.There is,though,more debate about the extent of any re-pricing.Mu

145、ch depends on the severity and duration of the recession,and as interviewees point out,the economic circumstances and market conditions behind previous downturns are all quite different from what Europe is experiencing today.“Youre looking at a 50-basis points correction for a mild recession scenari

146、o,where things just slow down,”says one fund manager.“But youve also got quite a lot of examples of downturns that became quite quickly more entrenched and exacerbated by other factors.”In the GFC,one of those factors was the all-out disappearance of liquidity.Today it could be chronic energy supply

147、 shortages leading to black outs for homes or shutdowns in industries like steel production,which could lead to significant unemployment and reduction in economic output in some European countries.YOU ARE HERE REAL ESTATE CAPITAL MARKETSNot at all likely Not very likely Neither/nor Somewhat likely V

148、ery likely Europe will move into a recession in 202247%24%15%13%2%Inflation will remain significantly above normalised levels of 2-3%for the next 3-5 years51%21%10%17%1%CONTENTSPREVIOUS NEXT Availability of real estate supplyExisting rental values of real estate in EuropeOccupancy levels of real est

149、ate in EuropeReal estate investment volumes in EuropeAvailability of financeDevelopment activityFigure 3-3 The impact of a recession by the end of 2022Increase substantially Increase somewhat Stay the sameDecrease somewhat Decrease substantially Overall%that expect a decrease41%55%60%77%75%86%Source

150、:Emerging Trends Europe survey 2023Though leasing activity held up reasonably well for much of 2022,interviewees are unanimous in their opinion that a recession will lead to occupancies and rents falling,even in previously strongly performing sectors.As one investment manager says:“Once the recessio

151、n hits,dont forget some of these occupiers will stop paying their rent,some will leave that building,some will be coming back to us,saying,if you dont give me a rent reduction,were going bust and were gone forever.”With widespread forecasts of a decline in consumer spending,retail is likely to be fi

152、rst to suffer but with knock-on effects in the logistics sector.“With the consumer retrenching,I think occupiers are going to run down stock,saying,we dont need that much more space right now,given the economic outlook,”an opportunistic fund manager says.“The drivers of underlying demand are just no

153、t going to be there,and therefore we need to put different rental growth assumptions into our models.”YOU ARE HERE REAL ESTATE CAPITAL MARKETSThe drivers of underlying demand are just not going to be there.LONDON,UKCONTENTSPREVIOUS NEXT France39Ireland7UK87Belgium5Netherlands18Germany101Switzerland5

154、Austria7Italy13Romania2Poland7Norway11Sweden28Finland6Spain15Portugal3Denmark11YOU ARE HERE REAL ESTATE CAPITAL MARKETSFigure 3-4 Country transaction volumes,Q4 2021Q3 2022(bn)Country GermanyUnited KingdomFranceSwedenNetherlandsSpainItalyDenmarkNorwayPolandIrelandAustriaFinlandSwitzerlandBelgiumPort

155、ugalRomaniaCzech RepublicSlovakiaSource:MSCI Real AssetsQ4 2020Q3 202632111Displayed on mapQ4 2021Q3 20226553221%Change30%15%12%11%-23%9%29%-2%22%11%11%5%17%-9%75%15%42%62%94%Czech Republic2Slovakia1CONTENTSPREVIOUS NEXT 26%of respondents expect to be able

156、 to fully apply indexation to their existing retail leasesFigure 3-5 To what extent can indexation be applied to leases?LogisticsOfficesResidentialRetailInflationLong-terminterest ratesShort-term interest rates51%43%6%46%46%7%28%62%11%26%61%12%5%1%11%58%5%32%13%34%17%10%15%58%16%25%Inflationary pres

157、sureThe major influence on real estate sentiment is inflation at a 40-year high and the impact that has on economies and the actions of central banks.Most industry leaders canvassed for this report agree that the prospects for real estate have not completely fallen off a cliff,at least partly becaus

158、e the asset class is long regarded as a hedge against inflation.The interviews and roundtables indicate this has attracted some investors in 2022.But judging the correct response to prolonged,above-average inflation is certainly a matter of ongoing debate across the industry.For instance,more than h

159、alf of survey respondents say they expect to be able to apply full indexation to their leases in logistics,falling to 46 percent in offices and closer to a quarter in the retail and residential sectors.“Real estate only inflates when theres an undersupply of it,”one global investor says.“You can inf

160、late the top line rents in the same way that other consumer goods are inflating.So,logistics,residential,maybe hotels,they respond very well in an inflationary environment.But then poor-quality office and most retail is going to deflate rather than inflate.”At the same time,raising rents might not b

161、e enough to offset a rise in investment yields,a particular problem in sectors like logistics or residential where yields are very low.“Im not standing there saying real assets is great,its the best inflation hedge,you should pile in,”one global pension fund investor says,“because nothings a great i

162、nflation hedge when interest rates are rising at the rate theyre currently rising,off the levels of yields weve got in all real asset markets.”Though there is more occupier demand than supply in residential,especially at the affordable end of the market,the issue of raising rents in line with inflat

163、ion in this sector is complex.Just because you can raise rents,should you?“With this inflation,people may not be able to afford the rents anymore,making it a societal problem and a political issue,”one pension fund investor says.“And thats when markets become distorted,when politicians start interfe

164、ring.”YOU ARE HERE REAL ESTATE CAPITAL MARKETSWith this inflation,people may not be able to afford the rents anymore,making it a societal problem and a political issue.Source:Emerging Trends Europe survey 2023Figure 3-6 Inflation and interest rates expectations for 2023Source:Emerging Trends Europe

165、survey 2023Decrease significantly Decrease somewhat Stay the sameIncrease somewhat Increase significantly Not all Partially Fully1%CONTENTSPREVIOUS NEXT Capital pulls backCentral banks have responded to above-average inflation in 2022 with interest rate increases,and there is the prospect of more to

166、 come.After many years at close to zero percent,these base rate hikes ripple through every element of real estate capital markets,making the outlook gloomier than at any point in the past decade.The survey signals a significant decline in capital for investment in 2023.Whether it is equity or debt,f

167、or new investments and refinancing or for development,more respondents think availability will decrease than stay the same or increase in 2023.As recorded by Emerging Trends Europe,confidence in the availability of debt and equity has not been this low since 2012 and 2009 respectively.“We have a big

168、 open-ended fund in Europe,every quarter were out raising new capital,and that has definitely slowed down,”one investor says.“People are sitting there saying,well,weve had this overall financial market correction,so I just need to know where Im at,”an opportunity fund manager says.Capital raising is

169、 likely to be challenging,regardless of source.Survey respondents believe capital from every part of the world is less likely to increase in 2023 compared with expectations last year.And there is no region where respondents feel capital is more likely to increase than decrease.New opportunistic capi

170、tal,typically from the US,will be in particularly short supply.But interviewees are generally paying more attention to the type of capital,the returns it is targeting,and the reasons it is investing in real estate,than its geographic origin.In this respect,it is clear that the interest rate rises by

171、 the Bank of England and European Central Bank(ECB)so far have hit different types of investors in different ways.For core investors,particularly pension funds and insurance companies,the rate rises have reduced the attractiveness of real estate compared with other asset classes,notably fixed income

172、.“The major insurance companies that were investing in real estate as a bond surrogate are pausing and saying,real estate is good,but why would I Invest in it at a 3 percent yield when I can buy good corporate credit at 2 percent?”With real estate losing its advantage over bonds,whole markets can lo

173、ok unattractive,according to one fund manager active in rented residential:“We decided to move out of Poland,for instance,because the return on a Polish bond is higher than the return on real estate.”For pension funds and insurance companies,there is also the fact that falls in the value of their eq

174、uity and bond portfolios can hinder the amount they invest in private real estate.This“denominator effect”means that an allocation to property,slower to be revalued than other asset classes,will increase relative to falling equity and bond values and prevent further investment.YOU ARE HERE REAL ESTA

175、TE CAPITAL MARKETSFigure 3-7 Availability of debt and equity in 2023Source:Emerging Trends Europe survey 2023Figure 3-8 Expected cross-border capital into Europe in 2023Source:Emerging Trends Europe survey 2023Debt for development2%11%18%47%23%Americas7%30%19%35%10%Debt for refinancing or new invest

176、ment1%13%23%55%9%Middle East and Africa4%24%28%36%8%Equity for development2%10%25%45%18%Asia Pacific4%22%26%38%11%Equity for refinancing or new investment2%15%30%47%6%Europe1%16%46%33%4%Decrease significantly Decrease somewhat Stay the same Increase somewhat Increase significantlyDecrease significan

177、tly Decrease somewhat Stay the same Increase somewhat Increase significantlyCONTENTSPREVIOUS NEXT“At the moment,if we want to do a new investment,we have to sell something else and free up money somewhere else,because of the denominator effect,”one global pension fund investor explains.It should be

178、noted this is less of a problem for investors that split their allocation between listed and unlisted property the value of their property shares has gone down too.For investors that rely on debt,as interest rates rise,the price they pay for that debt also rises.Consequently,the price they pay for a

179、n asset must fall for leveraged investors to hit their target returns.As one listed company executive says:“Private equity is no longer capable of sharpening the pencil too much in pricing,because their access to debt is now hampered by the increasing debt costs.”Unleveraged investors are demanding

180、lower prices because for the first time in a decade they can get equivalent returns elsewhere from less risky sectors than real estate.Leveraged buyers are seeking to pay less because the cost of debt has gone up.Either way;this points to values falling further in 2023,which is at odds with survey r

181、espondents who say they have the same return expectations as last year.It is evident that the uncertainty spreading through economies and markets has worsened since the summer when the survey was conducted.“We think everythings going to be worth less next year than it is this year,”one bank lender s

182、ays“Now,thats obviously a generalisation.There can be reasons why a particular asset would outperform.But if you just bought a relatively dry asset,we think itll decrease in value over the next 12 months.So that makes it quite a challenging time to look at financing things.”As one investment manager

183、 puts it:“If you were buying a deal last year,and you were trying to underwrite to a mid-teens or a high teens return,and that underwriting was predicated on a two and a half percent exit cap rate,you are done.”YOU ARE HERE REAL ESTATE CAPITAL MARKETSPrivate equity is no longer capable of sharpening

184、 the pencil too much in pricing,because their access to debt is now hampered by the increasing debt costs.202120222023Value-added real estateCorereal estateNew investmentDevelopment financeRefinancing10%2%6%36%25%33%40%24%45%47%37%32%54%34%24%46%18%16%14%11%11%3%4%2%2%2%7%2%5%16%5%29%36%31%21%30%26%

185、4%4%Figure 3-9 Returns targeted compared with the previous yearSource:Emerging Trends Europe survey 2023Figure 3-10 Expected ability to secure senior debt in 2023 compared with the previous yearSignificantly lower Somewhat lower Unchanged Somewhat higher Significantly higherIncrease significantly In

186、crease somewhat Unchanged Decrease somewhat Decrease significantly8%Source:Emerging Trends Europe survey 2023CONTENTSPREVIOUS NEXT HAMBURG,GERMANYWith values already falling,the coming year could be a great buying opportunity for core investors that are still under-allocated to the sector,one such i

187、nvestor points out.This would represent something of a shift from the last few years when,as highlighted in Emerging Trends Europe,the high price of existing prime assets led some investors to pursue“develop-to-core”strategies.Even so,those well-capitalised investors that still prefer the“develop-to

188、-core”approach may yet benefit in a market where land prices will also likely fall and where competition among developers is expected to be in sharp decline.Right now,this is more theory than practice.Most interviewees are experiencing the sort of market logjam that occurs at all times of economic u

189、ncertainty,when buyers and sellers cannot agree on the price of assets.“Were seeing very little volume because as usual,the buyers of real estate want to look forward because they have to own the assets tomorrow,”one value-add fund manager says.“But the owners want to look backwards,because they own

190、ed it yesterday.That creates the bid/ask spread.”Another fund manager adds:“We might not be in this horror-show scenario of a deep and long recession.But we might be,and if youre investing now,you need some compensation for that in the form of higher returns.”YOU ARE HERE REAL ESTATE CAPITAL MARKETS

191、CONTENTSPREVIOUS NEXT Preparing for some form of distressMost industry leaders express the hope that inflation will peak in the coming year,which would bring clarity over how much central banks are likely to raise interest rates.Assets might be worth less at that point,but there would be more direct

192、ion over where values are likely to settle.“You dont want to catch a falling knife,”one global pension fund investor says.“You wont really see a lot of activity until one of two things happens:Until you start to see the inflation trend come down significantly,so you know where the Federal Reserve,th

193、e Bank of England and the ECB are going to go.Then I think youll start to see people going back in.”But as that same investor adds:“If that doesnt happen,its when you see a level of distress that people can say,okay,theres long-term value there.The potential for distress has been a topic of great de

194、bate among both investor and lenders interviewed for this edition of Emerging Trends Europe.The consensus view is that the level of distress is highly unlikely to reach the proportions of the GFC because leverage levels are so much lower the industry has learned its lessons in the wake of the collap

195、se of Lehman Brothers.But the rise in interest rates will undoubtedly create stress,which means some owners will have to sell at a reduced level.As one value-add investor points out,much attention will be paid to investment deals completed in 2018 and 2019,which were the two highest transaction-volu

196、me years ever in Europe.“Much of that will have been funded with five-year loans,and those loans come due in 2023 and 2024.Those loans were made at a time of quantitative easing and were now at a time of quantitative tightening,margins have blown out and the reference rate has blown out.”Those loans

197、 are likely to have been made at a loan to value(LTV)of 50 to 60 percent but falling values might mean those LTVs are now the equivalent of 70 to 80 percent,a level at which lenders may be reluctant to refinance.More importantly,loans underwritten when interest rates stood at 1 percent will now have

198、 to be underwritten at rates perhaps three or four times higher.In other words,the ratio by which the income covers the interest payments will have dropped dramatically.And when a recession bites,occupier performance will be weaker,which could erode the income being used to pay the interest on loans

199、.YOU ARE HERE REAL ESTATE CAPITAL MARKETSYou dont want to catch a falling knife.WARSAW,POLANDCONTENTSPREVIOUS NEXT VIENNA,AUSTRIAUnder such conditions,some borrowers might well put up more equity and pay down debt.But others may be unwilling or unable to do that closed-ended funds,for example and en

200、d up precipitating a sale.And whereas banks were willing to“extend and pretend”after the GFC,the fact that the distress is not quite as acute this time might actually prompt them to push for sales more quickly.As one fund manager says,loans went from 80 to 90 percent LTV up to 120 to 130 percent dur

201、ing the GFC and so“there was no reward for banks acting early.Now it has gone from 60 to 80 percent,they are not going to lose money in a sale,so it is the borrowers problem,not theirs.”The implication is that if borrowers choose not to put in more equity,sales are likely to come through much faster

202、 than in the post-GFC period.That will lead to price discovery,which could crystallise price falls for all asset owners.Moreover,the Bank of Englands slotting regulation and Basel III European banking rules,due to come into force in 2023,mean that it will become more expensive for banks to hold loan

203、s when LTVs rise,which will further incentivise them to push for sales.There is another sign of falling prices and the potential for capitalising on distress and it comes in the form of the listed property sector.The FTSE EPRA NAREIT index of real estate stocks in developed European markets fell ove

204、r 40 percent from the start of 2022 until the end of September.Though property share prices partly reflect wider equity market sentiment,the index here indicates that stock market investors believe real estate values are going to fall.This could be seen as an opportunity by those investors that thin

205、k stocks have already fallen further than the expected decline in the underlying assets.YOU ARE HERE REAL ESTATE CAPITAL MARKETSLoans went from 80 to 90 percent LTV up to 120 to 130 percent during the GFC and so there was no reward for banks to act early.Now it has gone from 60 to 80 percent,they ar

206、e not going to lose money in a sale,so it is the borrowers problem,not theirs.CONTENTSPREVIOUS NEXT Other(non-institutional)non-bank lendersAlternative lending platforms(e.g.peer-to-peer/crowdfunding)Non-bank institutions(insurers or pension funds)Issuance of commercial mortgage-backed securities(CM

207、BS)BanksFigure 3-11 Expected availability of lending sources in 2023 compared with the previous year9%6%14%Source:Emerging Trends Europe survey 2023Lenders pull in their hornsLenders balance sheets are generally far healthier coming into this period of uncertainty than in the GFC.Even so,it is littl

208、e surprise that survey respondents expect a decrease in finance in 2023 from all lenders,not just banks,compared with last year.“One of the fundamentals is the overall cost of borrowing going up,even if we dont move margins,because were now having to fund ourselves at a slightly higher level,”one ba

209、nker says.“Even if you look at banks who fund loans off deposits,theyre having to pay interest on those deposits for the first time in a long time.So,everyones cost of funds goes up,and that has to then get washed through the system.”It is also clear that lenders are seeing and addressing the same r

210、isks in the market as equity investors.“Most banks have effectively had to move their margins up,”one banker says.“All the banks run risk models,and most of those risk models will have the probability of default,which is heavily influenced by the level where the rental income services the interest c

211、osts.”It is not quite the death spiral endured in the GFC,but there is a vicious circle in terms of the actions of lenders in the market.If transactions are down,fewer investors are repaying loans,and that means banks have less capital to make new loans.“The banks balance sheet is not endless,”says

212、one interviewee,and the same is true for all lenders.The bond market is also influencing real estate lending.Interviewees suggest that institutions like insurance companies that have been big lenders to real estate might now find it more attractive to buy lower-risk corporate bonds.Indeed,survey res

213、pondents are more negative about the prospects for new lending from pension funds and insurance companies than any other type of lender except banks.But it also means that a financing avenue tapped by larger property investors,particularly REITs,is now effectively closed.As a consequence,they are lo

214、oking to the traditional secured lending market again,reducing liquidity for everyone else.“What we see is that some of our larger clients that typically would access the capital markets for funding dont have that alternative available to them anymore,so theyve been coming to banks with quite sizeab

215、le requests for financing,”one banker says.“But weve had to be selective.So,some of the newer names,or ones that are maybe a little less important from a franchise value standpoint,weve either had to say no,or weve managed the amount.”YOU ARE HERE REAL ESTATE CAPITAL MARKETSThe banks balance sheet i

216、s not endless.Decrease significantly Decrease somewhat Stay the same Increase somewhat Increase significantly10%7%22%26%38%33%54%27%25%26%35%25%37%33%28%20%6%8%7%3%3%1%CONTENTSPREVIOUS NEXT AERIAL TOP-DOWN VIEW OF A SKYSCRAPER CONSTRUCTION SITEThough they are likely to remain active,the debt funds i

217、ndicate that what they are lending against is already changing significantly.With other lenders scaling down,the debt funds are,in effect,able to move down the risk curve but still make the same return.“Our debt guys are happier than Ive seen them since we initiated the business,frankly.Theyve big g

218、rins on their faces,”one fund manager says.“They are able to lend large tickets for fairly good collateral at 400 to 500 over.Sponsors are a little bit less price-sensitive than they might have been in a more robust market.”This shift supports the view among survey respondents that debt and equity f

219、or development will be significantly reduced in the coming year.But for lenders still considering development proposals,they are doing so in a much more risk-averse way,partly due to the uncertainty over rental growth in a fragile European economy but also because of surging costs of building materi

220、als and labour.“We end up being comfortable with a smaller loan,and saying the developer needs to put up more equity to increase the cost overrun budget that they have,”one debt fund manager says.“They might put something in and it looks fine in the normal environment,but we might say they have to d

221、ouble or triple that,because were just nervous.”From the equity investor perspective,given higher construction costs and less certain income,the interviews indicate that projects slated for 2023 might be pushed back into 2024,or shelved entirely.As one fund manager says:“Every project is under revie

222、w.”This lack of new development is seen by some as a positive for existing assets and their owners.“Coming into the year,there wasnt meaningful supply in many major markets,and then its been shrinking visibly,because replacement cost has just literally moved up on everybody by somewhere between 20 a

223、nd 40 percent,”says one global player.“Either the rents have to be higher to justify starting a project or theres just going to be less development,both of which is good for owners of existing assets.”Such a view perhaps betrays a blind spot still among some in the industry when it comes to their ob

224、ligations in meeting net-zero targets.While the decline in new development may be good for existing property owners in the here and now,finance still has to be found for the decarbonisation of existing assets through retrofitting or refurbishment.Failure to address climate risk raises the issue of o

225、bsolescence and stranded assets,which is covered in more depth in Chapter 5.“From a sustainability perspective,the rise in construction costs and the shortage of labour could not have come at a worse time,”one private equity investor says.“Target dates for countries to become net-zero havent changed

226、.The desire of investors to own the most sustainable assets hasnt slowed.But its become much more difficult to undertake the changes necessary.”YOU ARE HERE REAL ESTATE CAPITAL MARKETSFrom a sustainability perspective,the rise in construction costs and the shortage of labour could not have come at a

227、 worse time.CONTENTSPREVIOUS NEXT“The rotation from traditional commercial real estate to other parts of the built environment is here to stay.”UK fund managerCHAPTER 4SECTORSTO WATCHHIGH ANGLE VIEW OF PEOPLE ON SQUAREYOU ARE HERE SECTORS TO WATCHCONTENTSPREVIOUS NEXT With historically high energy p

228、rices and the prospect of shortages over winter,it is unsurprising that new energy infrastructure tops the sector rankings in Emerging Trends Europe for the second year in a row.It is a niche pursuit,attracting little capital compared with mainstream real estate,and it is unfamiliar to many responde

229、nts.For some,investment in solar or wind power facilities or battery storage is more the realm of pure infrastructure investors than real estate players.But just as the largest managers combine divisions to become“real assets”investors rather than differentiating the two,so the survey signals how th

230、ese worlds are merging.And in fact,some interviewees confirm they have started investing in battery storage as a real estate asset.More broadly,the energy crisis has reinforced the need not just for countries to become more energy self-sufficient,but buildings too,which will advance the green agenda

231、 and make them more resilient.It is perhaps stretching the definition,but new energy infrastructure could be taken to include existing assets.As one private property company owner explains:“We have to manage an energy turnaround.And it is my vision,my dream,that buildings will increasingly become sm

232、all power plants;that buildings generate the energy they consume themselves and can also feed energy into the grid.”The top ranking of new energy infrastructure reflects the sectors role in one of the major challenges of our time-the transition to green energy.But it is also part of the wider,longer

233、-term trend in which investors rebalance holdings away from the traditional big three sectors,particularly office and retail,towards previously alternative assets that will benefit from non-cyclical demand over the coming years.YOU ARE HERE SECTORS TO WATCH1.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.1

234、8.19.20.21.22.23.24.25.26.27.New energy infrastructure*4.45Life sciences 4.35Data centres 4.15Social housing 4.13Retirement/assisted living 4.12Affordable housing 4.10Self-storage facilities 4.10Logistics facilities 4.04Co-living 4.04Private rented residential 3.99Industrial/warehouse 3.98Student ho

235、using 3.97Leisure hotels 3.90Serviced apartments 3.77Parking 3.74Healthcare 3.72Housebuilding for sale 3.6Flexible/serviced offices 3.58 and co-workingLeisure 3.54Central city offices 3.34Retail parks 3.17Business hotels 3.13Business parks 3.04High street shops 2.94City centre shopping centres 2.68S

236、uburban offices 2.62Out-of-town shopping 2.49 centres/retail destinations RankScoreSectorOverall prospects1.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.20.21.22.23.24.25.26.27.New energy infrastructure*4.50Life sciences 4.44Data centres 4.38Self-storage facilities 4.24Retirement/assisted living 4.

237、20Healthcare 4.16Logistics facilities 4.12Social housing 4.12Affordable housing 4.12Private rented residential 4.08Student housing 4.03Leisure hotels 4.02Co-living 4.01Industrial/warehouse 3.98 Serviced apartments 3.83Flexible/serviced offices 3.72 and co-working Leisure 3.67Housebuilding for sale 3

238、.60Central city offices 3.43Retail parks 3.41Parking 3.39Business hotels 3.29Business parks 3.20High street shops 3.09City centre shopping centres 2.93Out-of-town shopping 2.72 centres/retail destinations Suburban offices 2.71RankScoreSectorInvestment1.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.2

239、0.21.22.23.24.25.26.27.New energy infrastructure*4.39Data centres 4.28Life sciences 4.25Social housing 4.13Affordable housing 4.08Healthcare 4.05Retirement/assisted living 4.04Self-storage facilities 4.03Industrial/warehouse 3.98Logistics facilities 3.96Private rented residential 3.90Student housing

240、 3.90Co-living 3.83Leisure hotels 3.77Serviced apartments 3.70Housebuilding for sale 3.60Flexible/serviced offices 3.43 and co-working Leisure 3.40Central city offices 3.25Parking 3.10Business hotels 2.96Retail parks 2.93Business parks 2.87High street shops 2.79Suburban offices 2.52City centre shopp

241、ing centres 2.43Out-of-town shopping 2.25 centres/retail destinations RankScoreSectorDevelopment1.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.20.21.22.23.24.25.26.27.Data centres 4.25New energy infrastructure*4.25Life sciences 4.20Industrial/warehouse 4.14Self-storage facilities 4.09Logistics faci

242、lities 4.04Private rented residential 3.98Retirement/assisted living 3.94Co-living 3.90Leisure hotels 3.87Healthcare 3.87Student housing 3.83Affordable housing 3.82Serviced apartments 3.75Social housing 3.71Housebuilding for sale 3.58Leisure 3.53Flexible/serviced offices 3.50 and co-working Central

243、city offices 3.47Retail parks 3.21Parking 3.17Business hotels 3.06Business parks 3.05High street shops 3.02City centre shopping centres 2.82Suburban offices 2.77Out-of-town shopping 2.62 centres/retail destinations RankScoreSectorRentsNote:Respondents scored sectors prospects on a scale of 1=very po

244、or to 5=excellent,and the scores for each sector are averages;the overall rank is based on the average of the sectors investment and development score.The survey also covered communication towers/fibre but the number of respondents rating the prospects for this niche sector was too small for it to b

245、e included in the rankings.*e.g.solar,wind,energy storage,electric transportationSource:Emerging Trends Europe survey 2023Generally good=above 3.5 Fair=2.5 3.5 Generally poor=under 2.5Figure 4-1 Sector prospects in 2023PREVIOUS NEXT CONTENTS“The strong fundamentals that we identified some time ago,w

246、ill still be there,”one leading REIT executive says.“For example,in Europe,you have a demographic impact on the number of asset classes,like residential or healthcare,that will still be there in three to five years.”Indeed,various forms of housing dominate the top 10 picks from survey respondents,wi

247、th healthcare in there too.Even student housing is benefiting from renewed positive sentiment in the rankings,moving to 12th place from 15th last year,after uncertainty about its prospects in the wake of COVID,with students now back on campus rather than learning remotely.On a broad level,this is an

248、 acceptance that the balance between residential supply and demand in European markets has not changed in the past year,and it is unlikely to change any time soon.While the security of income from residential is perhaps more certain than from commercial sectors like offices,the leap in construction

249、and labour costs affects residential developers too,restricting supply while demand remains high.“The housing crisis hasnt exactly gone away in most European cities,”one global investment manager says.“If anything,supply is a bit more constrained and pricing is continuing to increase,and so rents ar

250、e increasing.Retirement/senior living is the highest rated of the residential sub-sectors for investment,up from seventh place last year,and among the top 10 for development,driven by the growing needs of an ageing population and the fact that COVID-19 showed a lot of older stock in the sector to be

251、 obsolete.And social housing,in fourth place this year compared with 12th last year,has overtaken affordable housing,which sits at seventh place versus sixth last time.This requires some explanation.Respondents have marked up their investment and development prospects in recent years,given robust de

252、mand and a perception of solid income,often from government-supported rents.They also find favour among impact investing funds.But they face many headwinds in the current economic environment.Of the prospect of increasing rents in sociable and affordable housing,one manager active in the field says:

253、“I think its really naive.If you follow the news,and you talk to people,families cant pay for the energy bill.I dont know what kind of rental increases you want to do against that background.Even if you can raise rents,should you?”There is also what one global investor calls“stroke of the pen risk”,

254、given that governments can change regulation overnight in sectors seen as politically sensitive.The UK is considering capping rents in the social housing sector,for instance.“It should be the biggest part of our portfolio in the next 20 years,but its so political,”one global fund manager says.Of the

255、 other alternatives at the top of the charts,data centres,in third place,continue to see increased demand for space.Some city and national governments object to the heavy energy consumption of data centres,signalling potentially stronger political opposition in future.The housing crisis hasnt exactl

256、y gone away in most European cities.YOU ARE HERE SECTORS TO WATCHYOUNG EUROPEAN IN BRUSSELS,BELGIUM.CONTENTSPREVIOUS NEXT For the time being,however,industry players are swayed by the investment rationale.“Data is one of these things that has been growing exponentially,it will continue to do so,its

257、almost always true to say theres been more data created in the last two years than in the entire history of mankind before that,”one REIT manager says,“and that continues to fuel a lot of demand for data storage and processing.”Industrial owners are looking to convert shed space to data centres,but

258、interviewees say that,for now anyway,there are“finite”opportunities because of the size and specialised nature of the assets.Life science is another sector that is small but growing fast,particularly in the UK,and rides high in this years charts in second place.“The dynamics in the true lab and offi

259、ce space are astounding,beyond belief,”says one specialist investor,referring to the need for companies to cluster in certain kinds of space in certain locations,which currently are in very limited supply.But again,the sector is small,requires specialisation,and,according to some interviewees,cautio

260、n too.“Life science is something were spending time on,we just need to make sure it really is life science and not just an old medical building thats now marketed as life science,”an investment manager says.“But if its the right kind of product,thats definitely something were interested in.”One valu

261、e-add manager warns of persistent market concerns over venture capital funding falling for life sciences companies and over the quality of covenants,arguing that there has been“far more hype for life sciences than there really was demand to meet that hype.”The outlook for hotels is bifurcated along

262、predictable lines.Business travel is seen as unlikely to recover soon,and therefore the hotels that rely on business travellers will continue to suffer and remain towards the bottom of the table in 22nd place.By contrast,leisure travel has rebounded strongly in the wake of pandemic restrictions bein

263、g lifted,releasing pent-up demand and rank higher in 19th place.Yet some interviewees are now waiting to see how the cost-of-living crisis will play out across Europe.“People are under-exposed to lodging,and they see a recovery,”one global investment manager says.“But you have to question how long t

264、hat recovery will last if people have to cut back on spending.”However,interviewees remain confident about the prospects for leisure travel in the medium to long term.“With the Gen Z,the millennials and emerging middle classes very much focusing on new experiences,we are looking at where these exper

265、iences come from,for example,travel and leisure,”one global pension investor says.“Thats an important area where this group will spend money.And where they spend money,we should be investing.”YOU ARE HERE SECTORS TO WATCHSUNSET IN MADRID,SPAINWith the Gen Z,the millennials and emerging middle classe

266、s very much focusing on new experiences,we are looking at where these experiences come from for example,travel and leisure.CONTENTSPREVIOUS NEXT AERIAL VIEW OF A LARGE STOREHOUSE WITH SOLAR PANELS ON THE ROOFTOPLogistics has slipped down the overall rankings from third to eighth place although still

267、 weighs in at seventh in terms of prospects for investment,and sixth for rental growth.Interviewees believe that while rental growth might slow from the historically high levels seen in some markets 40 percent in the UK in 2021,for instance demand still outweighs supply in all but a few markets nota

268、bly Madrid.If there is a more downbeat view of the prospects for the sector,it is on the investment side.A sector that has seen yields compress to historic lows,sub 3 percent in many markets,is particularly exposed when values fall.“One brokerage has come out with a latest valuation and over the las

269、t few months,theyve pushed their yield on prime logistics out by 75 basis points,”one European investment manager says.“When that starts at three and a half and goes to four and a quarter the implication on value is severe.”For investors that use debt,a base rate and margin which combined amount to

270、3.5 percent or more means you cannot buy logistics assets at 3.5 percent yields without essentially paying more in interest than you make on income.That means such investors are out of the market,reducing the weight of capital chasing the sector.Retail occupies three of the four bottom places in the

271、 2023 ranking of sectors similar to last year,with only retail parks rising out of the basement,partly due to the potential for them to become part of the logistics network of retailers.Consumer and retailer confidence that was improving as COVID-19 receded has been hit by the spike in inflation.Alt

272、hough European retail rents tend to be index-linked,the ability of owners to increase rents in line with inflation is far from guaranteed in a time of economic weakness.And then there is office,which remains the largest sector of traditional commercial property in terms of extant assets,and one of t

273、he largest sectors when it comes to European investment volumes.But its prospects are no more certain going into 2023 than they were last year.The various subsections have slipped down the rankings,with suburban offices in last position for investment prospects compared with 24th(out of 27)last year

274、,and second last for rental prospects.The“hub and spoke”model of workers in dispersed offices appears to get short shrift from survey respondents.“If you think that the benefit of office working is collaboration,then why would businesses have multiple locations and give people the option of going in

275、to multiple locations,”one investment manager asks.“That doesnt make any sense.Its going to be central offices that can bring people together.It makes the pitch for suburban offices a lot harder.”YOU ARE HERE REAL ESTATE CAPITAL MARKETSIf you think that the benefit of office working is collaboration

276、,then why would businesses have multiple locations and give people the option of going into multiple locations.CONTENTSPREVIOUS NEXT There is no consensus around where demand in a hybrid working world will settle.But there is consensus among interviewees,even stronger than last year,that the very be

277、st buildings will command premium rents and prices,with income and values falling away for the rest quite sharply.Environmental,social and governance credentials will form a major part of what defines the best buildings in 2023.It is a market that divides opinion,and that is where big money will be

278、made and lost.“When you feel that youre working in a great space,you get that energy from it.“And theres more demand for that space than there is space available,”one global investor says.“When people come into the office and its substandard space,its actually worse than working from home.And I thin

279、k that replacement costs are so high,even regardless of the land prices,that no ones building anything.So,the actual supply/demand dynamics for offices work,but its all about stock selection.”Another global player explains the rationale behind“a huge investment”in a grade-A,“super-sustainable,amenit

280、y-rich”,city-centre office building:“We may be wrong,but our feeling is that at rent review in five years time,rents will go up because there is no comparable product.”On the flip side,others point out that the current difficulty in refinancing loans is concentrated on offices.This sector will see t

281、he most distress,and it is already causing concern among lenders.Not only will the loans fall due as values drop and income cover ratios decline,the buildings themselves will need significant capital expenditure to render them fit for the future.Where that capital comes from is an open question.“All

282、 the big changes and factors affecting real estate technology,demographics,sustainability they all collide in office,”one global investor says.“The advance of e-commerce caused a huge migration of value from retail property owners to logistics.I think the shift in value from poor real estate to sust

283、ainable real estate over the next decade or so could be many,many multiples of that.”When you feel that youre working in a great space,you get that energy from it.PEOPLE WORKING IN CO-WORKING SPACEYOU ARE HERE REAL ESTATE CAPITAL MARKETSCONTENTSPREVIOUS NEXT“In the post-COVID environment,I see a sen

284、se of place as absolutely essential to value creation,value retention,because if you dont enjoy going somewhere physically,youre not going to go there.”Global investment managerCHAPTER 5FIT-FOR-PURPOSE REAL ESTATEBATTERSEA POWER STATION CONVERSION TO RESIDENTIAL IN LONDON,UKYOU ARE HERE SECTORS TO W

285、ATCHCONTENTSPREVIOUS NEXT Proportion of assets repurposed from last year Proportion of assets expected to be repurposed in the next 5 yearsCaught up in a whirlwind of long-term upheavals in demographics,climate change,technology and lifestyles,real estate faces a major challenge to be fit for purpos

286、e.It is a challenge that involves changing the uses to which real estate caters while building in greater flexibility so it can remain useful over time not to mention a transformation of its environmental sustainability and social impact.Set against this need for change,the pandemic and war in Europ

287、e have disrupted goods and energy supplies to create highly inflationary conditions,making real estate renewal much more expensive to achieve.Yet the industry leaders canvassed for Emerging Trends Europe are looking beyond the short-term disruption to markets and regard climate change as the most im

288、portant challenge for real estate over the next 20 years.One European investment manager speaks for many when he refers to the need for a“structural reaction to climate change as a result of it demonstrating the failings in our stock.Were at the beginning of climate change as a driver of obsolescenc

289、e,as a driver of capex,as a driver of complexity.ESG(environmental,social and governance),particularly the E element,has gone from greenwashing to being absolutely fundamental to investment success.”Others emphasise the impact of technology.“We are going through one of these great transitions in our

290、 sector,”says one fund manager,“where a wide range of uses that were economically relevant for the past 30 or 40 years suddenly get changed by a shift in technology or demographics or some other exogenous factor.And that typically makes a lot of real estate obsolete.”The threat of obsolescence over

291、the next five years concerns nearly half of survey respondents,even if other issues,notably construction costs,are front-of-mind in the shorter term.Moreover,environmental sustainability,one of the key factors driving obsolescence,is seen as a bigger immediate concern.The implication is that while s

292、urging construction costs are seen as a temporary hurdle,it will be impossible for the industry to overlook accelerating change in the demands of occupiers,the increasing influence of regulators and the climate agenda.Part of the reason why obsolescence itself does not appear to be such a concern fo

293、r 2023 may be due to uncertainty about exactly when its negative impact on values will start to bite.A UK-based manager notes that the theme of environmental obsolescence is partly driven by investors and partly by policy:“In the residential sector,for example,we are going to be unable to lease some

294、 flats based on EPC(energy performance certificate)thresholds in 2026,but parts of the market have yet to wake up to that as a capex issue.Theres creeping policy-driven obsolescence.”YOU ARE HERE FIT-FOR-PURPOSE REAL ESTATE Retrofitting/repurposing an existing building is the most attractive way to

295、acquire prime assetsNew build requirement is the most attractive way to acquire prime assetsM&A is the most attractive way to acquire prime assetsFigure 5-1 The industrys view on the most attractive way to acquire prime assetsFigure 5-2 Observed/anticipated change in number of assets repurposedOvera

296、ll%agreeOverall%increase62%43%27%54%78%Source:Emerging Trends Europe survey 2023Source:Emerging Trends Europe survey 2023Strongly disagree Disagree Neither/nor Agree Strongly agree Decrease somewhat Stay the same Increase somewhat Increase significantlyCONTENTSPREVIOUS NEXT The suggestion here is th

297、at there may still be a degree of denial in some parts of the industry.Interviewees acknowledge the failure of valuations to reflect sustainability-related capex requirements,even though 81 percent of survey respondents believe ESG credentials will have a material effect on asset valuations over the

298、 next 12-18 months.According to a pan-European manager,there is no sign yet of valuations for brown,or energy inefficient,buildings decreasing,or at least not sufficiently.Another manager laments the“lack of concrete guidance”on green premiums and brown discounts from the valuation standards authori

299、ties.One large investor believes that poorer sustainability is“not yet factored into the valuation process”but adds:“We have seen that investors are no longer keen to invest in a sector,an asset or a fund without sustainability credentials and especially net-zero credentials.So,this is going to have

300、 an impact in the market and will accelerate.”Despite the uncertainty around valuation,most of the industry leaders interviewed for Emerging Trends Europe have clearly signed up to the fit-for-purpose agenda and are making long-term resources available to address it.“Most capex is to improve the qua

301、lity of the asset without changing the use,”says a major investor,“transforming office grade B to grade A,or grade A to net-zero.We are not investing only to improve the sustainability credentials of our assets but to improve their performance to extract value,which means better rent and better yiel

302、ds.”There is also an explicit recognition of how technology is accelerating obsolescence.One European manager notes that there is“a huge obsolescence issue”with offices.“Weve almost certainly got too much office space,certainly too much of the wrong type of office space.The real issue now is whether

303、 office is going to be moving the same way as retail,in the sense that theres a fundamental change in the economic model.”And for offices transformation to work financially,they will need to be in the right location.“Offices will continue to attract a lot of capital,”opines a pan-European manager.“B

304、ut they have to be the right offices,with the right layout,in the right location.This flight to quality in offices is massive.This is very much related with ESG because if youre not in the right location and your tenants cant support a higher rent,youre not going to be able to make the necessary inv

305、estments to take that asset to the right level of energy efficiency,wellness for the employees,or to change the layout.And if not,there will be a lot of stranded assets across Europe that no one will buy because its just not economical to retrofit them.”YOU ARE HERE FIT-FOR-PURPOSE REAL ESTATE From

306、office to.From retail to.Figure 5-3 The most common change when repurposing an asset in the last yearSource:Emerging Trends Europe survey 2023ResidentialMixed use64%33%18%26%7%18%3%14%1%5%Mixed useResidentialLogisticsLogisticsLeisureOfficesRetailLeisureWeve almost certainly got too much office space

307、,certainly too much of the wrong type of office space.CONTENTSPREVIOUS NEXT From office to.From retail to.Figure 5-4 The most common change expected when repurposing an asset over the next three to five yearsSource:Emerging Trends Europe survey 2023ResidentialMixed use51%45%38%22%4%20%2%9%1%4%Mixed

308、useResidentialLogisticsLogisticsLeisureOfficesRetailLeisureAnother aspect of obsolescence relates to the whole concept of placemaking.This could imply a greater emphasis on buildings as part of an attractive and stimulating environment,attracting workers and residents alike.Some interviewees suggest

309、 that the whole industry must focus on creating the right kind of environment for tenants to move into,given that its not something individual players can achieve alone.“Placemaking is more important than the building itself,”says a pan-European manager,“and creating the environment in which the ten

310、ants can thrivewhere people live,work and playis super-important.”There is also a strong view that places need to be more flexible to cope with more rapidly changing occupational demands.This is reflected in the emphasis on repurposing to mixed-use in the survey responses but goes further than that.

311、One residential operator notes that assets that target specific groups necessitate a high level of portfolio churn,whereas the objective should be to satisfy people where they are.In other words,“we need to create places where your home and area can evolve along with you.Digitisation can contribute

312、to that.”Local government also has a crucial role to play in creating places that are fit for purpose.Without a coherent vision it is difficult for the real estate industry to understand which projects will be permissible and how to meet the specific needs of the locality,whether developing from scr

313、atch or repurposing.A developer-manager notes that“up to now,youve had a lot of independent actors pushing for pieces of cities.But when you can integrate that in a common view,it becomes much more powerful and much more doable.”Refurbishing or redeveloping existing stock can either involve reconfig

314、uration to meet the changing needs of similar kinds of user or a complete change of use in other words repurposing.As the survey makes clear,the motive here is not just about dealing with the threat of obsolescence:nearly two-thirds of respondents believe repurposing or retrofitting an existing buil

315、ding is the most attractive way to acquire prime assets.The survey shows that repurposing existing stock from one sector to another is on an upward trend,with 54 percent of respondents repurposing more assets in their portfolio compared to the previous year,a figure that is up from 52 percent in the

316、 last survey.Likewise,more than three-quarters expect to be repurposing still more assets in five years time,again up from last years survey.Further impetus has come in cities such as London and Brussels where the planning authorities insist that developers fully explore the possibility of retrofitt

317、ing before permitting completely new development.YOU ARE HERE FIT-FOR-PURPOSE REAL ESTATE CONTENTSPREVIOUS NEXT Last year,offices were most commonly repurposed,and mainly to residential.For retail,the most frequent change was to mixed-use,with residential not far behind.These trends are largely expe

318、cted to continue over the next five years,though with logistics taking a growing share of retail space.One French manager talks of repurposing“at an industrial level”,adding:“We have a huge pipeline of residential coming from our office portfolio,often offices in secondary locations from sale and le

319、ase-back deals we did in the past.Now,those companies dont need those assets and are vacating them.”In Germany,office to mixed-use is also becoming more common,according to a European fund manager:“Theres an absolute necessity for repurposing.Weve seen a lot at a city or a property level,repurposing

320、 inner cities towards more mixed-use facilities with a higher quality.In our study of Germany alone,we found about 480 properties being transformed.The majority was office to mixed-use.”This may well be part of a more general trend towards greater flexibility of use,both within and across sectors,as

321、 seen,for instance,in the moves towards more of a service-type offering with offices.Some interviewees acknowledge that the pace of repurposing across Europe may falter during current market conditions,in particular due to escalating construction costs.One UK-based manager does sees this as a bottle

322、neck,but more for the short term and in combination with other cost constraints:“At current construction cost levels we will not repurpose,but if they fall,then possibly.A lot of older offices and business parks are screaming to be converted to something else.But the land values need to go down suff

323、iciently so that it makes economic sense to convert,and the planning system needs to be supportive.”When repurposing from office to residential there is always the question of the relative rental levels in the sectors,which may require careful selection of locations.A global manager says that“a big

324、UK theme is repurposing the office buildings that were next to rail stations in commuter towns.Youre going to want offices in a central place thats easy to get to,vibrant,interesting and exciting,not in some random town.”Another consideration,according to some interviewees,is the time involved to ge

325、t permits and the uncertainty surrounding that timing,which can be an issue for the value-add funds that may well be most interested in this activity.Short-term constraints aside,the industry believes that keeping real estate fit for purpose will increasingly involve a blurring of the boundaries bet

326、ween traditional sectors or changing patterns of activity within buildings that may be considered to lie within the same sector.A global investment manager sums up this shift in approach to real estate:“Were doing more repurposing within sectors,but so dramatically that its unrecognisable.Intensive

327、office refurbishments are making it a different kind of sector.Tenants are also doing stealth repurposing within spaces.Retail park tenants are doing logistics in the same units.Office tenants are transforming the way they use space from a place where people sit and work to a place where people coll

328、aborate and enjoy some hospitality.”YOU ARE HERE FIT-FOR-PURPOSE REAL ESTATE ZURICH,SWITZERLAND Theres an absolute necessity for repurposing.Weve seen a lot at a city or a property level,repurposing inner cities towards more mixed-use facilities with a higher quality.CONTENTSPREVIOUS NEXT“You still

329、need to be in the big,key dense cities because those are the talent hubs.In a recession,you tend to see vacancy go to the secondary locations and the secondary quality stock.And when theres a lessening of demand,people migrate to the best-quality buildings in the best cities.”Institutional investorC

330、HAPTER 6CITIES TO WATCH BERLIN,GERMANYYOU ARE HERE CITIES TO WATCHCONTENTSPREVIOUS NEXT Country Q4 2020Q3 Q4 2021Q3%Change 2021 2022 1.London 26 32 23%2.Berlin 16 30 86%3.Paris 20 22 8%4.Stockholm 10 12 22%5.Munich 8 8-3%6.Madrid 4 6 49%7.Frankfurt 9 6-35%8.Hamburg 5 6 20%9.Dublin 5 6 13%10.Milan 3

331、5 50%With economic uncertainty afflicting the whole of Europe,overall investment and development prospects for all 30 cities covered by Emerging Trends Europe have deteriorated since last years report.Where last year there was a unifying,pan-European recovery from the economic consequences of COVID-

332、19,this years survey and interviews reveal a much more fractured response to highly challenging market conditions and significant differences in the potential resilience of the cities.Varying prospects for inflation between countries relating to their dependency on fossil fuels for energy,divergent

333、interest rates and distance from the war in Ukraine all play their part.These factors are impacting cities ongoing economic performance and their forecasted real estate returns,two of the top three considerations influencing survey respondents when deciding where to invest or develop.In tandem with these influences,the disruption to patterns of life that accompanied the pandemic has modified the f